Digital Firsts

The U.S Department of Commerce (DoC) has been collecting public comment on the topic of the first sale doctrine and digital files in recent weeks; the agency was scheduled to meet about the issue on December 12 in Washington, DC. First sale doctrine is a set of exemptions to U.S. copyright law that permit consumers to resell used books or DVDs and libraries to loan books without seeking permission from publishers. Yet for reasons examined in more detail below, first sale exemptions have not translated well for digital content. The DoC’s call for public comment could mark the beginning of a campaign to reassess what copyright and first sale mean in the modern digital era, notes one expert.

While the case did not directly address digital content, the Supreme Court’s Kirtsaeng v. Wiley decision in March “has reawakened interest, on the content owners’ side, to revise first sale,” says Mary Minow, Follett Chair of the Graduate School of Library and Information Science, Dominican University, and executive editor of Stanford University’s Copyright and Fair Use website. “Perhaps that’s even part of the impetus behind this call for public comment. The energy is there to revise copyright law in its entirety, including first sale. If libraries aren’t speaking up about what it is that we need, we’re just going to be bulldozed over.”

Kirtsaeng v. Wiley involved print textbooks purchased in Thailand, priced for Western markets, and then resold on eBay for profits of up to $1.2 million. The ruling that first sale exemptions extended to copyrighted objects manufactured and distributed outside of the United States was a bracing one for publishers. Thus the interest in getting ahead of the currently muddled issue of digital first sale, Minow explains.

As ebooks continue to grow in popularity and DVDs begin giving way to streaming content, the issue is of vital importance to the profession’s future.

Librarians who follow the topic have debated whether the best course of action is to advocate for new, updated copyright legislation that recognizes the fundamental differences between physical media—such as books or DVDs—and digital content such as ebooks, MP3 files, or digital photos, or to pursue favorable legal precedents through the courts.

Several permutations of the following arguments emerged this winter during Columbia University’s Kernochan Center’s 2012–2013 symposium on “Copyright Exception for Libraries in the Digital Age”: Congress has been a dysfunctional mess lately, and pitting the library community against the well-funded lobbyists of Hollywood and the U.S. music and publishing industries would be a losing battle. Yet hoping for a run of favorable decisions in lawsuits initiated by corporations poses risks as well. Regardless, Minow warns that the legislative battle may already be brewing.

“I often talk to librarians who say ‘we shouldn’t take a legislative approach, because we’re going to lose,’ ” Minow says. “Well, the legislative [road] is approaching. If we’re not speaking up, then we are going to lose. Just hiding and saying that it’s going to hurt us if we speak out…doesn’t make sense to me.”

A history of first sale

It’s useful to keep in mind that U.S. copyright laws were developed “to promote the Progress of Science and useful Arts” by making sure content creators would be compensated for their intellectual property. It does this by granting rights holders the exclusive right to distribute copies of their work until their copyright expires. Of course, if the “exclusive right…to distribute” in title 17 of the U.S. copyright code were taken literally, then giving a DVD as a gift, reselling a used textbook, or loaning print books from a library would all be violations of the law.

First sale doctrine was first codified in the 1909 Copyright Act, following the U.S. Supreme Court’s ruling a year earlier in the Bobbs-Merrill Co. v. Straus case. Bobbs-Merrill Co. owned the copyright to the Hallie Erminie Rives novel The Castaway and included beneath the book’s copyright notice the following warning: “The price of this book at retail is one dollar net. No dealer is licensed to sell it at a less price, and a sale at a less price will be treated as an infringement of the copyright.”

So when Isidor and Nathan Straus, partners at R.H. Macy & Company, sold copies of the book for 89¢, Bobbs-Merrill sued them. The Supreme Court ultimately decided that copyright statutes were intended to give rights holders control over “multiplying copies of the work,” not to give rights holders control over all future retail sales. The 1909 Copyright Act then outlined a distinction between a copyright and the object—such as a book—containing a copyrighted work and stated that the law should never be interpreted as forbidding or restricting the transfer of any lawfully obtained, copyrighted object after its initial sale to a distributor or a consumer.

First sale exceptions were further clarified in the 1976 revision to the Copyright Act, with language explaining that the owner of a book or “phonorecord” is entitled to sell or “otherwise dispose of the possession” of their copy without permission from the rights holder.

Why doesn’t it apply to digital?

It’s a simple concept—purchase a copy, and it’s yours. Publishers no longer have control over that copy. On the surface, this straightforward, 100-year-old legal doctrine seems as if it would render moot those lengthy and ever-changing licensing agreements that must be digitally signed to use software platforms such as iTunes or devices like an ereader. The protracted reluctance of many major publishers to allow libraries to circulate ­ebooks, along with the loan caps and higher pricing for libraries, would be nonissues. The infamous 2009 case in which Amazon remotely deleted copies of George Orwell’s 1984 from every Kindle device that contained it would be unthinkable, rather than just ironic.

Yet the very nature of digital files adds a complication. The transfer of an MP3 file by purchasing it on iTunes, or the lending of an ebook by borrowing it from an OverDrive server necessitates creating and transferring a copy of the entire work. This is not currently protected under the first sale doctrine, nor is it considered exempt under fair use, a separate set of permissions in title 17 that allows people to copy limited portions of copyrighted works for purposes such as research, teaching, or criticism. (Notably, federal circuit court judge Denny Chin in November dismissed a lawsuit brought against Google Books by the Authors Guild. His statement, in part, concluded that Google’s practice of scanning and digitizing entire books into its searchable online database was protected under fair use, because Google’s use was transformative, and users of its search service could only read small portions of a discovered title. Neither of these conditions would appear to apply when a complete copy of a file is made and transferred between two parties.)

Also, as evidenced by punitive laws such as the Digital Millennium Copyright Act, as well as the failure of the Digital Era Copyright Enhancement Act in 1997, publishers have successfully convinced courts, legislative bodies, and the World Intellectual Property Organization that consumer restrictions are necessary, because the ease of copying and distributing digital files makes content producers particularly vulnerable to piracy.

You signed it

“There are a number of very significant concerns for libraries and for the millions of people that rely on libraries,” says Corynne McSherry, intellectual property director for the Electronic Frontier Foundation. “It’s unfortunate that copyright law and some of the vagaries of copyright law are getting in the way of libraries’ ability to accomplish their basic purpose, which is to help people get access to information and knowledge and the cultural commons.”

Since the first sale doctrine does not apply, most born-digital content is distributed under licensing arrangements, which allow publishers to retain significant control over future transactions involving that content, McSherry says.

McSherry isn’t as optimistic as she would like to be about the direction that courts seem to be headed with digital first sale. But even in cases such as Vernor v. Autodesk, Inc., in which the ultimate ruling favored a vendor over an individual who had sold used copies of the vendor’s software on eBay, courts are beginning to make clearer, more careful distinctions between licensing restrictions that are related to copyright law and restrictions that are unrelated to copyright law.

“If it’s just a restriction that ‘you can only read this while wearing green pants,’ something totally unrelated to copyright, then it might still be enforceable, but it’s just going to be considered a basic contract,” McSherry says. “That matters, because if it’s a copyright violation, that’s an expensive rule to break. If it’s just a contract violation, you’re only on the hook if you’ve caused harm…. So, it’s a little bit of a silver lining.”

Yet the U.S. court system also has a deeply ingrained tradition of honoring contracts, McSherry says. Even in the modern era, in which accessing many online services or downloading digital files requires users to click “I agree” on lengthy legal documents that few people read and no one discusses with a lawyer, these contracts will be honored by courts.

“If somebody makes a contract—and a license is a contract—[the courts] are not going to say it’s not binding,” ­McSherry says. “The courts have said, ‘a contract is a contract, and we’re going to enforce it. If it takes away your traditional first sale rights, well, so be it. Too bad.’ ”

Beyond first sale: Digital exhaustion

Some experts, including McSherry, are beginning to think that a better approach to digital first sale could involve arguing precedents set prior to the 1908 Bobbs-Merrill Co. v. Straus case. It may seem odd to bring 19th-century common law legal precedents into a conversation about a 21st-century technological quandary. But the concept of first sale was initially drawn from the much more expansive concept of patent exhaustion—the idea that once the sale of a patented object occurs, the patent holder’s exclusive rights over that object are exhausted. Basically, buyers had the right to repurpose the object, give it away, or do whatever else they wanted with their purchase, except make duplicates for resale. During the past century, however, copyright cases have tended to fixate on first sale, a rule that is more narrowly focused on distribution issues.

Aaron Perzanowski, associate professor of law at Case Western Reserve University, and Jason Schultz, associate professor of clinical law and director of New York University’s Technology Law and Policy Clinic, have jointly written several articles about this idea.

“We’re watching a transition from a copyright economy that was really focused on moving tangible objects around to one that’s increasingly about just transmitting data from one place to another,” Perzanowski says. “We’re sort of phasing out the physical objects, and those physical objects were essential to the way the law approaches the rights of consumers when it comes to copyrighted works…. What we’re trying to do [with our articles] is give courts some confidence that they are actually entitled and enabled to think about these issues in a slightly reformulated way.”

These rules weren’t created by Congress, they were originally created by the courts, Perzanowski points out. He believes that allowing these laws to continue to evolve via court decisions would be the best approach, since rapid technological change is at the heart of the problem.

“As it is, the law is a process—trying to stay ahead of, or at least not fall too far behind, those kinds of changes,” he says.

ReDigi all over again

Unfortunately, 2013 also saw one significant digital first sale case that favored publishers over consumers and libraries. On March 30, in the Capitol Records v. ReDigi case, U.S. District Court judge Richard J. Sullivan of the Southern District of New York ruled that ReDigi, an online platform that facilitated the resale of MP3 files purchased on iTunes, had “vicariously infringed” on Capitol Record’s copyrights, despite the platform ensuring the destruction of the original file upon transfer. ReDigi’s business model enjoys budding support from independent recording artists; its new ReDigi 2.0 platform directs users’ new purchases to upload to a Cloud Locker platform, which would not necessitate copying when transferring a file to new users, and the company plans to appeal the case. Regardless of that outcome, it is already planning to launch a new platform for the transfer of used ebooks soon, placing the company squarely at the center of this ongoing debate.

ReDigi founder John Ossenmacher—who says that the company is also currently working on features that would enable donations of ebooks and digital files to libraries and charities—has a decidedly capitalist take on the issue. He contends that publishers should take the advantage now and create markets for themselves in which they could benefit by taking a percentage from all consumer transfers of preowned digital files, before governments or courts start making these decisions for them.

“It’s inevitable that the market is coming. It’s time for [publishers] to figure out how they want to participate,” Ossenmacher says.

Content producers are too focused on the potential for piracy, Ossenmacher says. In his argument, if the person who purchases a license for any type of content has no real control over that content, then they assign no value to it. When consumers begin believing that digital content has no value, it inadvertently encourages piracy.

If users owned digital content and could resell it legally, this mind-set would change, Ossenmacher contends. As used record stores and used bookstores once did, secondary markets encourage experimentation. With the lower cost of entry and the knowledge that they could turn around and resell an album or an ebook just like a paperback or a CD, readers, listeners, and viewers would be more willing to try new authors or musicians. And through the use of a platform like ReDigi, publishers could, for the first time, benefit from these secondary markets by taking a cut of every resale.

Ossenmacher says that the negative court decision had actually led to an outpouring of consumer support, along with interest from several authors and musicians.

“After the [initial court] decision, you never know what consumer perception would be,” Ossenmacher says. “There was a huge outburst of support. Our business actually started growing more than it had been before.”

This article was published in Library Journal. Subscribe today and save up to 35% off the regular subscription rate.

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Comments

Thank you for a great summary of major issues surrounding first sale and digital files. I hope lots of librarians, and others who support libraries, have been contacting the Department of Commerce. And, this may seem like shameless self-promotion, but Macalester College has an effort underway, relevant to this topic and gaining traction, that is to encourage libraries to give preference to publishers who support the right of first sale for ebooks. See: http://www.macalester.edu/library/changingebooksforlibraries/. Many libraries are discussing these issues and trying to figure out the best steps to take. I hope some kind of focused effort can help. Thanks.